Fresh low for Nasdaq; Dow also slides

No solace from Greenspan

By

JulieRannazzisi

NEW YORK (CBS.MW) -- The Nasdaq set a fresh low for the year Wednesday as tech stocks got slammed for a second straight session with investors disappointed in Fed chief Alan Greenspan's remarks, which signaled that an inter-meeting cut isn't likely.

The Nasdaq continued to hover at levels not seen since December 1998. The Dow Industrials, meanwhile, registered a 1.3-percent loss as sellers emerged in the retail and financial sectors.

"There's a psychological battle being fought here. Many of the highest-flying stocks last year are now value stocks vs. their long-term growth rates. The question is: can you believe [these] long-term growth will materialize?" commented Joe Liro, equity strategist at Stone & McCarthy Research Associates.

"There's heavy damage being done here and you can't step in front of this market. Bottom fishing is a dangerous sport. While pessimism [is likely] overdone, fools rush in. I'd rather buy on a sustained uptrend because we don't know where the bottom is yet," Liro concluded.

Inside the overall market, financial, retail, gold and oil service issues sold off the most while investors relegated their feeble buying interest to the drug, biotech, paper and chemical sectors. In the tech space, all sectors had to contend with heady losses but the downside was particularly bruising in the chip, Internet and software segments.

The Dow Jones Industrials Average
DJIA, +0.43%
dropped 141.60 points, or 1.3 percent, to 10,495.28. Among the Dow's losers: SBC Communications, Home Depot, American Express, Honeywell, IBM, Boeing and General Motors. Among the few upside movers: Johnson & Johnson, Coca-Cola, Hewlett-Packard and Walt Disney.

Volume came in at 1.17 billion on the NYSE and at 2.08 billion on the Nasdaq Stock Market. Market breadth was negative, with losers pouncing on winners by 17 to 14 on the NYSE and by 23 to 14 on the Nasdaq.

Inside Greenspan's testimony

In a testimony before the House Financial Services Committee that was little changed from his Feb. 13 appearance before a Senate panel, Greenspan said consumer confidence requires close scrutiny but noted that the exceptional slowing in the economy in December was less evident in January and February. Read the story.

"It is interesting that Greenspan notes February when very little data on February is known - just consumer confidence and jobless claims. As a result, he may be pointing to resiliency in Feb. data not yet released, perhaps from an early read on car sales, chain store sales or even the NAPM," observed Mary Dennis, senior economist at Merrill Lynch.

"We think Wednesday's testimony reduces the probability of an inter-meeting move but the Fed still acts aggressively cutting rates in a front-loaded fashion over the next few meetings," Dennis added.

She projects a 50-basis-point ease on March 20 and a fed funds rate at 4.5 percent by the first half of the year.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, sees the fed funds rate dropping to 4 percent from its current 5 1/2 percent target by the summer.

"Clearly, Greenspan and the members of the FOMC consider the threats heavily weighted toward more slowing. They are prepared to act promptly. But while a move on March 20 looks to be a very good bet, the size is not and additional actions may not be baked in the cake," said Joel Naroff, chief economist at Naroff Economic Advisors.

"If spending remains solid, then the cut could be only 25 basis points. However, any sudden retrenchment in spending, especially on housing or vehicles, will lead to another series of sharp Fed moves. The consumer will determine Fed action and the numbers to watch are any that have to do with spending, not necessarily confidence," Naroff noted.

Meanwhile, Bridgewater Associates came out with strong words in its daily commentary.

"Tuesday's economic releases made it evidently clear what the markets have been saying for some time now. We are in a recession. It is not worth quibbling over technical definitions. The question is how severe will it be and how long will it last. We don't just bounce out of recessions. It takes significant Fed action," Bridgewater said.

"It is important to recognize that the global financial crisis of 1998 is not an analog to what is going on [now.] The U.S. economy never really lost much steam in 1998. No economic stat reached levels consistent with recession. The Fed eased 75 basis points and eased the market panic but it did not have to do any heavy lifting to turn the U.S. economy around. This time around, Greenspan is going to have to break a sweat," Bridgewater concluded.

Sector movers

Chip stocks declined sharply for a third straight session, with the Philly Semiconductor Index
SOX, +0.69%
off 4.9 percent. Altera
ALTR, +0.22%
shed 1.1 percent but came off its session lows. In its monthly call late Tuesday, the company pushed down revenue expectations for the first quarter to about $294 million vs. $368 million in the fourth quarter due to a more prolonged inventory correction. Altera had said in mid-January that it expected first-quarter revenue to decline only 5 percent sequentially, which would have pegged it at $349.6 million. Among its rivals, Lattice Semiconductor gave up 2.6 percent and Xilinx added 0.3 percent. Morgan Stanley Dean Witter lowered its price targets on Altera, Xilinx and Lattice Semi.

Communications chip stocks continued to get clocked. Broadcom fell 8.2 percent, TranSwitch dropped 7.8 percent, Applied Micro Circuits tumbled 11.8 percent, Vitesse Semi gave up 9.5 percent, and PMC-Sierra lost 11.7 percent. MSDW told clients that while the selloff in semis is expected to continue, the group is approaching prices at which longer-term investors will step up to the plate. The brokerage expects a weak quarter for Broadcom
BRCM
but also thinks most of the bad news is priced in.

In other news, Chartered Semi
CHRT, +0.39%
fell 5.8 percent after telling investors late Tuesday that it won't meet Wall Street's earnings expectations in the first quarter due to worsening economic conditions. The company now expects a first-quarter loss of 22 to 24 cents a share vs. previous expectations for a profit of 4 to 6 cents. See full story. The stock was downgraded by Bear Stearns to a "neutral" from "attractive" due to its poor earnings outlook.

Net issues had to contend with a 13.3 percent drop in Amazon
AMZN, +0.43%
to levels not seen since June 1998. Traders caught wind of speculation in London trading rooms that raised the issue of bankruptcy. But an Amazon spokesperson vehemently denied the talk. The Goldman Sachs Internet Index
$GIN
lost 5.2 percent in recent trading.

Fiber-optic stocks got no relief Wednesday, with the group's leader, JDS Uniphase
JDSU
shedding another 4 percent. Avanex
AVNX
off 16.4 percent, warned investors that third-quarter earnings-per-share would come in at 2 to 3 cents vs. current expectations for a profit of 6 cents a share. Merrill said in a research note that Avanex is now the fourth major component company to reduce projections for the quarter, JDS, Corning and Agere being the others. "Overall, our view is that 2001 could end up being a flat year for the industry," the brokerage said.

Telecom issues edged lower. A loser in the group was WorldCom following rating agency Standard & Poor's downgrade of the company's
WCOM, +0.38%
long-term debt rating Tuesday. S&P said the downgrade reflects WorldCom's heightened risk profile, based on expectations that competitive challenges and pricing pressures will increase in the voice and data markets, S&P said. The stock fell 5.1 percent.

In the wireless space, Ericsson gained 0.8 percent and Nokia rose 0.5 percent. Dataquest said Wednesday that Ericsson
ERICY
trounced Lucent Technologies
LU
as the largest global manufacturer of telecom equipment. Nortel Networks took the No. 2 post, followed by Nokia
NOK, +1.11%
and Lucent. Lucent fell from the top post primarily because of its spin-off of Avaya. Motorola
MSI, +0.50%
saw its shares slip 0.8 percent and was downgraded by US Bancorp Piper Jaffray to a "neutral" from a "buy."

In the broad market, financial issues were among the hardest hit, led by the brokerage group in the wake of a slew of cautious comments from Wall Street analysts. The Amex Securities Broker/Dealer Index
$XBD
tumbled 4.8 percent while the S&P Bank Index
BIX, +0.00%
gave up 1.7 percent. See full story. Merrill's Judah Kraushaar lowered his first-quarter earnings estimates on Goldman Sachs
GS, -0.28%
and Lehman Brothers
LEH
while Morgan Stanley Dean Witter
MWD, +0.00%
saw its estimates trimmed for the year. "The industry is facing three near-term challenges: retail investors appear frozen as trading activity has plummeted; private equity results may force more mark-to-market losses; and equity underwriting and completed M&A volumes have been weak," Kraushaar told clients. And Salomon Smith Barney trimmed first-quarter and 2001 estimates on Morgan Stanley. Goldman fell 6.7 percent, Morgan Stanley lost 6.5 percent and Lehman lost 6.2 percent.

Biotech issues squeaked out a gain and Merrill Lynch's Biotech Holdrs
BBH, +0.62%
edged up 0.3 percent. Trading higher: Celera Genomics, up 5.7 percent, Human Genome Sciences, up 6.8 percent, and Millennium Pharma, up 2.3 percent. But Amgen
AMGN, +0.96%
lost 2.5 percent even after receiving an upgrade to a "strong buy" from "accumulate" from Prudential Securities. The firm cited improving fundamentals and valuation. See full story.

Treasury focus

Treasury prices gained ground in afternoon action in response to another dismal showing in the stock market.

In economic news, fourth-quarter gross domestic product was downwardly revised to 1.1 percent from the previously reported 1.4 percent gain. See full story. And the February Chicago Purchasing Managers Index rose to 43.2 percent in February from the previous reading of 40.2 percent. The rise in the Chicago index could foreshadow a slight improvement in the National Association of Purchasing Management Index, which is due out Thursday. View Economic Preview, economic calendar and forecasts and historical economic data.

In the currency arena, dollar/yen rallied 1.2 percent to 117.35 while euro/dollar edged up 0.5 percent to 0.9231. Prompting the upward move in the dollar was the Bank of Japan's decision to lower the discount rate by 10 basis points to 0.25 percent. And the target for overnight call money is down to 0.15 percent from 0.25 percent. The BOJ last trimmed the official discount rate just 19 days ago. See full story. And a larger-than-expected 3.9 percent drop in January industrial production in Japan gave the yen bears yet another reason to sell.

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